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Bloody Friday

The Heisenberg profile picture
The Heisenberg


  • On Friday, the market ran fresh out of patience with the increasingly aggressive trade banter.
  • This was a truly manic week that started and ended with precipitous declines in U.S. stocks.
  • The major risk after Thursday evening is that the Trump administration ultimately backs China into a corner by proposing more in tariffs than China imports in U.S. goods.
  • In that scenario, Beijing may "go nuclear" (so to speak).

I regret to inform you (again) that the threat of a trade war with China is real.

And if you don't believe me (or your own eyes and ears), then just ask Treasury Secretary Steve Mnuchin, who said as much on Friday afternoon in an interview with CNBC. Here's the actual quote:

I'm cautiously optimistic that we will be able to work this out. But there is the potential of a trade war.

Yes, there is the "potential" for that, and the odds of the situation spiraling even further out of control increased materially on Thursday evening when the Trump administration decided to look into the possibility of proposing an additional $100 billion in tariffs on China in retaliation for Beijing's retaliation (and no, there are no typos there).

This is precisely what everyone was afraid of - one retaliation begets another until it becomes impossible to distinguish "offense" from "defense" and "provocation" from "reaction".

In his official statement, Trump cited China's move to counter the 301 list, characterizing Beijing's retaliatory measures as "unfair". That's not entirely consistent with Wilbur Ross's Wednesday interviews in which the Commerce Secretary called China's measures both "proportionate" and "expected."

The reaction from markets was not favorable. The S&P (SPY) dove more than 2% Friday, closing the week on a decidedly sour note after kicking things off Monday with the worst start to a second quarter in nearly nine decades.


Needless to say, that chart just underscores the notion that 2018 is nothing like last year in terms of precipitous swings in either direction.

You'll recall that on Wednesday evening, in "This Means War", I talked at length about the political calculus for Trump. Specifically, I said the following about China's soybean broadside:

Soybean farmers are furious - and that's an understatement. The panicked

This article was written by

The Heisenberg profile picture
Perhaps more than any other time in the last six decades, the fate of markets is inextricably intertwined with the ebb and flow of geopolitics. It's become increasingly clear that one simply cannot fully comprehend market movements without a thorough understanding of concurrent political outcomes. Drawing on extensive experience in both politics and finance, Heisenberg will help demystify a world in which investors can no longer hope to conceptualize of markets as existing in anything that even approximates a vacuum.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (616)

Wow, not a comment...Some can't stand to see our Administration succeed in their MAGA action plan. SAD!
Those 18-25 years old in 2020 will be very hard to convince. Most of them never worked and feel they are entitled to everything.
And there you have it folks, Trump is succeeding and it's a Win for America and many other countries.
China has come to their senses! Trumps good relationship with Xi and his negotiating skills will result in a win/win for both Countries.

OK Lefties...let 'er rip and tell me how bad this is!

>>A global equity rally was triggered as Chinese President Xi told the Boao Forum that Beijing plans to give foreign companies greater access to financial and manufacturing sectors. He also talked about a cut in tariffs on car imports and an improvement in protection of intellectual property, among other measures. While many of the measures had been previously touted by Xi, investors cheered the lack of any escalation in rhetoric.

“In a world aspiring for peace and development, the Cold War and zero-sum mentality look even more out of place,” said Xi.<<
EmotionlessInvest profile picture
bullbear, yeah trump is amazing! He got Xi to do something he was already going to do and said he was going to do. Awesome man!
And let us know when he actually does it.
Emotionless back that up with a link to Xi's intent.
Bullbeartrader, To me, China is smart, never mentioned about US, he sounded like they would be doing this for the sake of global economy, should not fall for words, we will have to see how actually China does, talk is cheap.

China is just calming down due to Trump louder voice, see how quickly China lower their tail, what happened to retaliation and strong measure against US tariffs, etc? I hope Trump does not falling for words, too early to celebrate, if he does, then that is what exactly China calculated from Trump, in my opinion.
AgileDave profile picture
The VIX hardly moved. The market seems less concerned than the internet.
MarketLost profile picture
My son doesn't seem to notice what's going on either, but he's only 3, so what does he know? Seriously, you're basing your belief that everything is going great because the VIX isn't moving much? Is your name Jim Cramer?
AgileDave profile picture
No, and I don't ignore useful market indicators either. Glad you got the original message. Not sure why you'd want to delete it. Must've been more accurate than I knew.
Republican intelligentsia, buy Mexican peso. Trump is about to finish full circle on Mexico.
Don't forget the major way to Make America Great Again is... to exploit foreign labor.
I know it is hard for you to accept it, but you can't fight the chart. $3/hour in Mexico vs $25+benefits in US - who are you kidding? Follow the money and you get to the truth.
I think what we are seeing here is a shift in investor psychology, to risk aversion. The issue (here: tariffs) is not what is relevant. What is relevant is not WHAT investors are currently worried about, but the fact that investors ARE WORRIED. Remember when, in the heyday of the bubble forming, all bad news was regarded as good news and good news was regarded as good news? Well, increasingly, investors are arguing over what news is bad and how bad. On the downside of this economic cycle, good news will not be regarded as good news either. Buy the dip slowly becomes sell the rally.

Here is Hussman's latest piece. I love his quote: "The bulls always declare victory at half-time."

http://bit.ly/2H3ondB ' s
Some Lazy Bum profile picture
If a person gets out "during half-time" and the market crashes in the fourth quarter as Walter Payton fumbles, Knute Rockne scoops up the ball and heads for the endzone and William Perry provides the critical block, then Mr. Bull, Mrs. Bull and Ms. Bull walk away with the money while John continues to lose money.
Paul Franke profile picture
Food for the thought. The FIRST major holder of Treasuries to sell will be the WINNER in the U.S. bond bubble burst, not the LAST.

China can strategically now SELL Treasuries (as opposed to stop buying bonds like they have done under Trump), and put plenty of pressure on Japan and Europe to do the same or risk huge losses in the hundreds of billions holding U.S. debt that can never be mathematically paid back. The PONZI bond market scheme invented by Ben Bernanke in late 2008 and orchestrated by the largest U.S. banks and Treasury Department the last 10 years may be about to unravel?

I fully expect China to start selling in coming weeks. The bond market is toast, and the Dollar could swoon big-time, bringing the stagflation economic environment Alan Greenspan and others have been warning about for 12-18 months now.

A spike in U.S. inflation and recession in economic output will be Trump's legacy, at best. Unless of course, Trump backs down on trade protectionism and admits he has no clue what he is doing. Pick one.
Some Lazy Bum profile picture
"Food for the thought. The FIRST major holder of Treasuries to sell will be the WINNER in the U.S. bond bubble burst, not the LAST."

Yeah, right. [sarcasm]When there is a flight to safety, I'm sure treasuries will not purchased in large quantity.[/sarcasm]
Paul Franke profile picture
LOL, as long as you promise to fill the void from China leaving the poker table and pony up $1 or $2 TRILLION we are still in good shape.
Capital flight from China would be more than sufficient, especially with the comical Yuan devaluation threat in conjunction with the dumping of treasuries. Turmoil created would be more than sufficient to put a strong bid under US debt, while China crashes, and people start to worry about liquidity in the shadow system intertwined with government obligation.
They must think people are pretty gullible to believe such nonsense, because they are not going to do anything of the kind.
China has already suffered with capital flight in recent years, and it started to become a serious drain on reserves. The foolish threats in the context of a trade war would be far more severe than recent capital flight, and should make it obvious as to why they will not follow this path.
You know what, 25% Tariffs on $150 billions = $37.5 billions. US stock market size is $27 trillion, and a 2% change is $540 billions. I think the market has over reacted to the news.
And the only chart you need to know right now is USD because all this hell started because of Yuan Oil Futures Exchange.

But no worries, Donny should round up all illegals pronto and announce some temporary foreign labor initiative because good Americans aren't going to work for ten dollas.
There has been a lot of talk about the gold - oil based yuan. I don't even know enough about currencies to be dangerous, but I do wonder if that isn't really the bottom line here. It does seem like many are very nervous about this proposed new currency.

If we were to be outrageous enough in right-now trade balancing demands and China had to seriously consider taking steps to devalue the yuan, how would that play out in their desires to create the new petro-gold yuan?
The role of the US dollar as the world's reserve currency certainly is one issue in the background of today's trade issues.

1. The Chinese have announced their intention to transition from a producer to a consumer economy. There is some evidence they are doing just that.

2. China as a consumer economy would likely reduce their trade surplus with the U.S. and the rest of the world, and could eventually result in China having a net trade deficit.

3. There is a school of thought that having the world's reserve currency is necessarily correlated with running a trade deficit.
- See the Triffin Dilemma
- http://bit.ly/1UUk4Nj

Food for thought . . .
whidbey profile picture
This is an example of what happens when a serious exchange takes place and those involved become frighten at the depth of the emotions seemingly displayed. Phase one of a dispute is the discovery of these emotions and the need of each party to discover if it will be useful to decide whether make/negotiate specific concessions. Very preliminary so far, but so far,so good. This Could the start of something to build upon.
Another point; the EU joined the US in a complain with the WTO against China for stealing intellectual property. The pressure is increasing on China.
07 Apr. 2018
When did this happen? That will be good. China won't give in if US goes alone.
liometopum profile picture
Japan ‘seeks to join US in World Trade Organisation complaint against China’

"If Japan’s participation in the WTO consultations is accepted, Tokyo is set to say that the Chinese measure regarding technology transfer is distorting the competitive environment between companies, the source said."
EU considering taking China to WTO over IP practices


"The European Commission is “closely examining” the option of filing complaints against China before the World Trade Organisation for their rules and practices on intellectual property, a spokesperson told EURACTIV on Wednesday (4 April)."
Fabien Hug - China should never have been given WTO membership, but then considering who sponsored them from the U.S., it all makes perfect sense after those White House Coffees, Charlie Trie, and who knows what else. https://slate.me/2GKeiip
And he got NAFTA passed too. https://nyti.ms/2GKoBr2

The Big Question is what was the "Pay to Play" reward??
Active Investor Alliance profile picture
the author failed to discuss the both China nuclear options will hurt themselves more than it hurts us. 1) selling treasury means yuan repatriation, means stronger yuan which hurt their export. 2) devaluing yuan will attract a $500B us retaliation
Good post Phil!
JFCoffey profile picture
Phil you are right on the money. Thank God that there are a few sensible, fair and polite people left in this world.
Phil in OKC profile picture
Interesting thread of comments. As a huge Trump supporter, I am amazed at the amount of hate and vitriol in this thread toward Trump and his loyal followers. I read most of the posts, but didn't read a single one that suggested we would be better off with Hillary, or Bernie, or Jeb at the helm. Just pure, simple hatred for Trump. I consider myself well traveled, and have visited more than a dozen foreign countries in Central and South America, Europe, Northern Africa and Asia. My single thought from all of these visits is on how much I love America and American Exceptionalism. I was quite surprised at what appeared to be many posters in this thread that seemed to repudiate the American Free Enterprise capitalist system of economics. With all my travels around the world, I have never found a country I would trade for the good old U. S. of A! The final observation I will make is the difference between the Democratic Party Supporters and the Republican Party supports on Seeking Alpha. Back when Obama was president, any negative comment toward his policies or behavior was immediately reported by his Democrat supporters to the SA gestapo, and they would immediately delete the post and send the private email to warn you against making political statements against the President. However, currently, any sort of negative vitriol against Mr. Trump is allowed, and to their credit, his Republican supporters just laugh at the insane comments of such low information detractors, and don't slink off to complain to SA that their feelings are being hurt. I'm all for grown men and women being able to post their opinions, without all the political censorship. Make America Great Again!
Good post Phil..I wonder how many are paid posts by so called activists paid six cents a word. ?? Long the market and doing well.Still up this year..Nice to be well off and a Trump supporter. nice to sit here and watch the ships go by my home and feel well off
Great post Phil, I'm glad I scrolled all the way down. Trump is the future, Liberals will bring chaos.
Phil, I agree, and you are right, we realize how great America is once we are away from, in spite of what is going on within - although we may admire other country's culture and rich history, there is no country like America so far, and we should cherish what we have and make necessary efforts to keep cherishing. As individuals, we may bickering, but as a Nation, no other country can unite as America could. Am I right, Wrong?

But as for SA, I did not see any unfairness in regards to the posting, they have very fair mind I believe, everyone seems to be freely expressing their opinion no matter how silly it sounds (in my case :-))
David Allen profile picture
This article (and the President) seem to focus only on the trade deficit in regards to goods. What about services? In 2016, China imported $450 billion of business services. http://bit.ly/2uTevi1
Believe it or nor Trump's actions are forward looking. DC status quo hates that.
China Daily now downplaying the Trump tariff story..heading for the back page in China Daily soon...what does that tell you. ? To me it’s a buy signal, to the crowds of folks on this thread that don’t own a single stock its signal that the Doom Machine is being secretly activated.. Still long..Still 🤩😃..UP for 2018...but got 5 or 6 years of cash from our dear presidents economic policies. Gee, what will I buy now. ?? Or , I know, ROAD TRIP. !!!..Actually yes , fire up the Benz and roll. !!
"Or , I know, ROAD TRIP. !!!..Actually yes , fire up the Benz and roll. !!"

Why don't you drive a Murcan car?

j/k ;)
China obviously made a miscalculation. They could have seen that improvement was going to me made, but instead have chosen escalation. A strategic mistake from individuals portrayed as the ultimate long term thinkers, the rational, reasonable players.
Escalation could be very possible at this point, and has been reported by talking to officials and as outlined in this article.
A common source of inflationary pressure in China is often reported as food inflation, more specifically often pork prices. Some of the other talk centered on energy, specifically NGL's from the US is also an interesting choice of focus. Seems the Chinese chose to target what they thought would hurt the US most, without consideration for what is actually the source of their worst potential problems, food and energy inflation. Expensive food and energy is a big problem for China, and a source for unrest in the country when the population is unhappy.
They can buy food from other countries.
Food and energy happen to be of utmost importance, especially when dealing with more than a billion people. Both are also common sources of inflation, as you may have heard the reporting of measures excluding volatile food and energy. A large percentage of the population is not in a position to pay substantially more for these important necessities.
Inflation is an especially important consideration for the Chinese, especially in these two key areas, because an unhappy population is the largest singular concern for the leadership of the country.
Today's Problem
No one wants to sacrifice anything for the good of the country.
Most have no idea of the sacrifices made in the 40's to keep us free. Not only the military but people at home had rationing and were living day to day after coming out of the great depression.
China has been stealing from us for years but the common Wall Street attitude is we can't do anything about it ! They forgot to add "without it hurting us".
Suck it up ! you have a President who will take them to task but are we willing to do our part?

"No one wants to sacrifice anything for the good of the country."

Sacrifice would include adapting to the good jobs available today, getting yourself the training or education you need, and moving to where the jobs are if necessary.

No one is entitled to a well-paying factory job tdoay, just because that job existed for a couple of generations. And there will be far fewer of those manufacturing jobs 30 years from now - worldwide, not just in the U.S. - due to increases in automation and productivity.

In the 19th century, half the people worked in agriculture. Today, 2% do, but we have more food and more people. The same trend is happening in manufacturing today. Only 8.8% of Americans work in manufacturing, and the number will continue to drop here and everywhere. For example, it requires one worker today to produce the same amount of steel that required ten workers a few decades ago.
Mili21 profile picture
I am completely agree with you. Just don't ask me to sacrifice on everything in life and politicians live a lavish life. It must be top-bottom... leaders must lead by example, until then, I will do whatever I feel appropriate from my side.

Automation replaced those steel workers and artificial intelligence justs displaces more workers.
"I have also instructed the Secretary of Agriculture to use his broad authority to implement a plan to protect [America's] farmers and agricultural interests."

Great, "protect" what does that mean? What about the fiscal responsibility Trump was supposed to bring to the WH because of his business acumen?

Mr. Trump has hit the stock market from behind, yet it's the privilege for I (Joe taxpayer) to help out my neighbor down the road whose most hard pressed decision on this day is whether to take the King Ranch truck or the Lincoln Navigator to town this evening.
panzer profile picture
We are moving into a bear market in general. I am not talking of a trade war, which is almost more of a sign, not a cause, but a trade war is not good anyway.

I always look for the canary in a coal mine. The expression comes from the use of canaries that coal miners would bring with them down deep under the earth, as gas poison was a constant fear, more so than cave ins, and the death of the bird was a major, obvious tell. Those birds saved the lives of thousands of men over the decades.

We had the bitcoin froth and burn recently, and at the end of wild bull markets, you see these little manias get utterly destroyed, as the bitcoin market is being now annihalted. I look for that sort of stuff as a sign the general market is gonna get whacked.

So the busting of the bitcoin bubble, and now this trade war which is ain't going away any time soon. China won't give in, and guess what, neither will the President. Americans have been asleep for 40 years, and this is why when you go to the supermarkets, there is a deadness in the air, a sadness like when you drive through a neighborhood and there are no kids around whatsoever, and so many of the women have jobs outside the home, but the hubby is unemployed. And when you think of how long 35 to 40 years is, what you can see is that many adults, people forty or even 50 years old, have been asleep THEIR ENTIRE ADULT LIVES....THINK ABOUT IT. INVASION OF THE BODY SNATCHERS, THEY KNOW NO OTHER WAY OF THINKING WHATSOEVER....

Remember the movie the Matrix, where the humans were in those little capsuls generating electricity for THE MACHINES...well that is american today, they are the Americans.
THEIR ENTIRE LIVES, SO SAD, AND THIS IS THE ONLY WAY THEY KNOW HOW TO THINK, and many much younger are the product of such people, the biologic issue of people who graduating from high schools in the 1990s or coming from other continents.....wow, so scary..............

and all of this is because America became fat happy and stupid about 35 years ago, give or take, and we started giving our manufacturing base away. Fat stupid and happy is also another tell, another Canary in a coal mine? Have you ever looked a the physiques of american's these days....Scary Terry to put it mildly. Another Canary in a Coal Mine.

America has lost 55,000 factories since 1991, and there are almost no more to lose as they are almost all gone now. Very sad. We lost 15,000 in the last 9 years alone. So anyway, Trump an independent businessman hated by the wall street and corporate scum, has seen all of this happen and his trade policy is a result of this and he will never budge for the time being, and all of this scares wall street.

America reduced to credit card bill collectors and dog walkers and social media types. so sad o so sad. O yes, whole small towns of druggies and depressed young people, and parents who cannot stop their adult children from doing the drugs even where the child lives with their parents, as so many are now forced by economics to do.

The s and p stands at about a 25 PE from here on out, if real accounting and not fake accounting is used, and the historical norm is a 12 PE. Right now another canary in the coal mine is consumer debt. GET THIS: IT IS NOW 40% HIGHER than it was at the top of the last bubble, the 2008 crash, where the S and P went on to lost 55% of its ENTIRE VALUE, TOP TO BOTTOM OF THE GREAT FINANCIAL CRISIS.

People especially young people and young couples are trying to use credit card debt which is so awful, like heroine, to maintain a standard of living, but credit cards are just so awful and it will not work. Go to Shadow stats.com and see the true picture of America. In the CIA, they call it, "beyond salvage," when they make the decision to murder somebody, like they did jfk in another world, a world so different from today it ain't funny.........it is tragic the world's are so different if you want to know the truth.

So the larger picture, to finish this concept, is that the current market is now one of the top 4 all time mania markets of all time: right there with 1929, 2000, and 2008, and in some ways even higher bubble, more of a "quiet mania." You can say, well heck, the emerging markets are substantially cheaper and I agree, you can invest there if you want to try and escape. But remember: WHEN AMERICA SNEEZES THE WORLD GETS A COLD. so I think you can try to run into those foreigner equities, but you cannot hide. A lot of this board has health care people on it, and you can try to run into health care which is considered defensive, or so wall street shills will tell you, but guess what, health care portfolios were crushed in 2008, so there is that lie as well, squashed. You cannot even hide in Gold, which also was hit in 2008 but sort of held its own, but gold miners were decimated for over a year. Gold and silver stocks that sold for 35 bucks could be bought for under ten bucks at the bottom............so forget about that.

And the current general market cannot hide by being propped up by the Fed dropping rates which is what it did in 2008. They dropped rates like 17 straight times starting back then but guess what, rates are now close to zero so that weapon is gone also. The FED MAKE NO MISTAKE, IS RAISING RATES, AND THE FED CHAIRMAN SAID ONCE AGAIN YESTERDAY, WHICH IS REALLY WHY THE MARKET TANKED 500 PTS.....he ain't backing down.

The Fed is also draining money, not doing the old quantatitive easing scam. The phrase is QT now. tightening.

And the 3 million plus jobs that have been created in the last year, reversing a 25 year trend, is not nearly enough. These are nice and helpful but are almost nothing compared to the steamroller of events that now must and will take place, when the punch bowl is being taken away from the drunks and the kiddies, which it is. THE GENERAL MARKET IS GONNA GET STEADILY SQUASHED AND WE ARE AT THE TOP.
And right now the old buy the dip in this 9 year bull market is gonna be sell the rip, sell the recovery from here on out.

Remember, The current bull market was 9 years old, the second longest in u.s. history, but it ended this year starting in February. It lasted 104 months, the longest having been 120 months, and we are about to be cleansed once again, and there is nothing anybody can do about it.
so protect your portfolios.

I am very good at the stock market, as some here will remember. i HAVE SEEN THIS STOCK GET DESTROYED THESE PAST 3 YEARS, and in truth it has been painful, but I made well over a million dollars on my ownership of avxl, dumping it all in a single day, at the highs, so I always have had a soft spot for it, always watching its demise from afar, seeing the new hopers showing up every week on this board, reading the old steady eddies who have said I am wrong and they are right these 3 years, while their ports have slowly been crushed, and truly, that has not been a fun thing. When I was younger this happened to me from time to time as well...........so take it from a 400 hitter, now is not the time to be investing at all in the stock market.


......Have you checked your own batting average recently? I have been doing this stock market thing for over 30 years and have the scars to prove it.

There are a huge number of truthful articles that are bearish that are just now appearing in financial pages since ordinarily most of this stuff is hidden or not written at all, but now these articles are like the bursting of a pipe, just check out seeking alpha as an example..........another CANARY IN A COAL MINE FOR SURE.
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